Chapter 3
American Free Enterprise
EQ: HOW DOES THE PUBLIC SECTOR AND
THE PRIVATE SECTOR INTERACT TO
MAINTAIN A STABLE, EFFICIENT, AND
GROWING ECONOMY?
Chapter Objectives
- Describe the tradition of free enterprise in the US
- Explain the basic principles of the free enterprise
system
- Identify the roles of the consumer and the
government in the free enterprise system
- Analyze how the government promotes economic
strength
- For today: only write the slides with the **
EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE,
EFFICIENT, AND GROWING ECONOMY?
Section 1: Benefits of
Enterprise
Open land, natural resources, and immigrants
Free Enterprise- the social and political commitment
to giving people the freedom & flexibility to try out
their business ideas and compete in the marketplace
-The U.S. Constitution safeguards these rights
-private property rights (5th/14th amendments)
-restricts unfair taxation, allows binding contracts
EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE,
EFFICIENT, AND GROWING ECONOMY?
**What is American Free Enterprise?**
Profit Motive—
force to improve
material wellbeing
Competition—
rivalry to attract
customers &
lower costs
Private Property Voluntary
Rights—you own Exchange—you
your possessions may decide what &
when to buy & sell
Open
Opportunity—
everyone can
compete
Free Contract—
you decide what
agreements to
enter into
Legal Equality— Public Disclosure
everyone has the Laws—companies
same legal rights provide full
information
EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE,
EFFICIENT, AND GROWING ECONOMY?
Basic Principles of Free Enterprise
 The American economy rests on a recognition of the
importance of the profit motive.
 Meaning business owners and managers make the choices
themselves, operating in ways they believe will maximize their
profits.
EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE,
EFFICIENT, AND GROWING ECONOMY?
**Roles**
 Role of the Government Gov’t regulations- protect property rights, contracts, and other
business activities
 Consumer protection- example: safe drugs/food
 Public disclosure laws- requires companies to give consumers
info about their products
 Environmental Protection
 Role of the Consumer have freedom to make their own economic choices
 Join interests groups- persuade public officials to act or vote
according to interests of the group members
EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE,
EFFICIENT, AND GROWING ECONOMY?
Section 2: Promoting Economic Strength
Because the market is vulnerable to business cycles,
the government creates public policies that aim to
stabilize the economy
3 Main Outcomes:
1. High employment
2. Steady growth
3. Stable prices
EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE,
EFFICIENT, AND GROWING ECONOMY?
High Employment


Provide jobs for everyone who is able to work
Keep unemployment rate between 4-6%
EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE,
EFFICIENT, AND GROWING ECONOMY?
Steady Growth


Enjoy higher standard of living
Economy must grow to provide additional goods and services
EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE,
EFFICIENT, AND GROWING ECONOMY?
Stable Prices



Gives people confidence in the economy
Stable banks and freedom from fraud
Government wants to prevent sudden, drastic shifts in prices
-If prices increase, this puts a strain on consumers, especially people
like Miss Eilers, who is on a fixed income and strict budget. How?
EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE,
EFFICIENT, AND GROWING ECONOMY?
Regulating
 Protecting health, safety & well-being

Can you identify these agencies and their purpose?

FDA


FTC


unfair business practices
FCC


food, drugs, cosmetics
radio, TV, wire, satellite, cable, phone
FAA

airline safety, air-traffic
EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE,
EFFICIENT, AND GROWING ECONOMY?
3. Government provides safety nets
 Transfer payments (remember Robin Hood?)
 Directly as cash or “in-kind” benefits (receiving goods and
services directly such as housing, food, health care)
 We will discuss 6 types of safety nets…
EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE,
EFFICIENT, AND GROWING ECONOMY?
For poverty
 What’s poverty? Who is impoverished?


Poverty Thresholds for 2008 by Size of Family and Number of Related Children Under 18 Years
Federal Poverty Guidelines

TANF (Temporary Assistance for Needy Families)
Work requirement “workfare”--W to W (welfare to work)
 Time limit (5 yr. lifetime limit)
 Since 1996, designed to be temporary & transitional

EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE,
EFFICIENT, AND GROWING ECONOMY?
Other programs
 Section 8 housing (HUD) “subsidized”
 Food stamps
 Free/reduced school lunch
 Low-income home energy assistance program
 Head Start
EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE,
EFFICIENT, AND GROWING ECONOMY?
For medical care
 Medicaid—health insurance for low income people
administered by states
 Medicare—health insurance for seniors (part of
Social Security Administration)

Remember: “aid” to the poor, “care” for the elderly

Children’s Health Insurance Program—(SCHIP) covers
children who don’t qualify under Medicaid.
EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE,
EFFICIENT, AND GROWING ECONOMY?
For income/employment
 Unemployment insurance—temporary income benefit for
those laid-off or unable to find a job (26 weeks, $405/week
max.)
 Minimum Wage Laws (federal and state)


Federal = $7.25
CA = $8.00 currently
EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE,
EFFICIENT, AND GROWING ECONOMY?
For disability
 Supplemental Security Income (SSI)
 Part of SSA, but not funded by payroll tax
 Provides income to people who cannot work due to physical or
mental disability or blindness.
EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE,
EFFICIENT, AND GROWING ECONOMY?
For catastrophe
 FEMA (Federal Emergency Management Agency)
disaster relief, medical care, food, shelter, lowinterest loans to individuals and businesses.
EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE,
EFFICIENT, AND GROWING ECONOMY?
For catastrophe
 FEMA (Federal Emergency Management Agency)
disaster relief, medical care, food, shelter, lowinterest loans to individuals and businesses.
EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE,
EFFICIENT, AND GROWING ECONOMY?